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Understanding the effects of operating leverage High Tech Inc. and Old Time Co . compete within the same industry and had the following operating results
Understanding the effects of operating leverage High Tech Inc. and Old Time Co compete within the same industry and had the following operating results in : HighTech Inc. OldTime Co Sales $ $ Variable expenses Contribution margin $ $ Fixed expenses Operating income $ $ Required: Calculate the breakeven point for each firm in terms of revenue. What observations can you draw by examining the breakeven point of each firm given that they earned an equal amount of operating income on identical sales volumes in Calculate the amount of operating income or loss that you would expect each firm to report in if sales were to Increase by Decrease by Using the amounts computed in requirement c calculate the increase or decrease in the amount of operating income expected in from the amount reported in Explain why an equal percentage increase or decrease in sales for each firm would have such differing effects on operating income. Calculate the ratio of contribution margin to operating income for each firm in Hint: Divide contribution margin by operating income. Multiply the expected increase in sales of for by the ratio of contribution margin to operating income for computed in requirement f for each firm. Hint: Multiply your answer in requirement f by Multiply your answer in requirement g by the operating income of $ reported in for each firm. Compare your answer in requirement h with your answer in requirement d What conclusions can you draw about the effects of operating leverage from the steps you performed in requirements fg and h Referring to the Case above: i Create a breakeven analysis based on the nine questions in this case. ii Answer all of the questions, providing a MS Excel spreadsheet to demonstrate your analytical work. iii Provide written responses to each question in an attending MS Word document.
Understanding the effects of operating leverage High Tech Inc. and Old Time Co compete within the same industry and had the following operating results in :
HighTech Inc.
OldTime Co
Sales
$
$
Variable expenses
Contribution margin
$
$
Fixed expenses
Operating income
$
$
Required:
Calculate the breakeven point for each firm in terms of revenue.
What observations can you draw by examining the breakeven point of each firm given that they earned an equal amount of operating income on identical sales volumes in
Calculate the amount of operating income or loss that you would expect each firm to report in if sales were to
Increase by
Decrease by
Using the amounts computed in requirement c calculate the increase or decrease in the amount of operating income expected in from the amount reported in
Explain why an equal percentage increase or decrease in sales for each firm would have such differing effects on operating income.
Calculate the ratio of contribution margin to operating income for each firm in Hint: Divide contribution margin by operating income.
Multiply the expected increase in sales of for by the ratio of contribution margin to operating income for computed in requirement f for each firm. Hint: Multiply your answer in requirement f by
Multiply your answer in requirement g by the operating income of $ reported in for each firm.
Compare your answer in requirement h with your answer in requirement d What conclusions can you draw about the effects of operating leverage from the steps you performed in requirements fg and h
Referring to the Case above:
i Create a breakeven analysis based on the nine questions in this
case.
ii Answer all of the questions, providing a MS Excel spreadsheet to
demonstrate your analytical work.
iii Provide written responses to each question in an attending MS
Word document.
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